What the hell is going on with SoundCloud?

Update, August 27 2015: PRS for Music announced today that it will take legal action against SoundCloud on the behalf of its members’ royalties. In an email sent out to PRS members, the body explains that “after careful consideration, and following five years of unsuccessful negotiations, we now find ourselves in a situation where we have no alternative but to commence legal proceedings against SoundCloud.” For more information and the full email, head here.

This week has seen a spate of high-profile account takedowns and suspensions issued by SoundCloud.

On August 12, London-based internet station Radar Radio had its SoundCloud account removed. The station was told it had seven days to deal with any copyright infringements on their page, but the account was closed without warning the next day. Bizarrely, the account was then reinstated without explanation, and as of today has been suspended again.

The next day, online music magazine Dummy also had its account frozen. SoundCloud told Dummy that it had received three strikes for infringing Sony Music’s copyright, offering Kafkaesque instructions as to how to unlock it. “SoundCloud have stated if we can persuade Sony to remove the objections then they will remove the strikes to restore and unlock our account,” Dummy wrote. “However, under instruction from Sony, SoundCloud are not allowed to tell us who to contact within the organisation.” Shortly after that, DIY Magazine had its accounted suspended too.

Since Dummy and DIY’s accounts were hit, both have since been fully reinstated, but that doesn’t mean the problem is solved. SoundCloud takedowns have become something of an occupational hazard in 2015; if you upload material that doesn’t belong to you – be that in a DJ mix, remix, or a whole track you don’t own – you should probably expect the copyright detection algorithm will catch up with you at some point. It’s a fair expectation. With streaming taking over from digital sales and earnings from music lower than ever, it’s never been more important for artists to eke out what little money they can from the music they make.

However, SoundCloud’s takedowns have become more frequent in the past six months, and the reasons given ever more vague. Paradoxically, the takedowns are often hurting the artists that they’re meant to be protecting. On August 12, London DJ Plastician had a track he produced, owned and released on his own label blocked by SoundCloud’s copyright detection algorithm. For a small label owner, the consequences can be disasterous. “I can see from [my label] Terrorhythm’s Bandcamp stats that a majority of our purchases come from links inside SoundCloud,” he told FACT, “so it would be a massive loss to have our account frozen.”

Moves like this and the suspension of Dummy’s account aren’t great PR for SoundCloud. In both cases there’s no evidence to suggest they’ve done anything to warrant having their accounts shut down, and it affects the livelihood of both. Dummy, like many music sites, relies on its account to host track premieres from small artists, who in turn get the boost from Dummy’s following. If a music magazine were to lose its SoundCloud account, it could suffer a loss of traffic from a lack of premieres, and smaller artists lose a platform for exposure. But anecdotal evidence suggests this isn’t necessarily the fault of SoundCloud, but of heavy-handed requests from major labels over a licensing impasse that’s been going on for over a year.

When SoundCloud launched in 2007, it was poised to become one of the most important things to happen to digital music since Napster. Artists were becoming dissatisfied with MySpace as a place to promote themselves, but Facebook didn’t offer the same track hosting capabilities. At the same time, MP3 blogs, which often hosted track downloads without permission, were growing in number. SoundCloud offered a solution to both problems: independent artists could use the platform to host tracks and promote themselves, while blogs could upload a track and simply host a non-downloadable stream, which placated the labels. SoundCloud became a reasonably safe place to host music, and even helped to drive the popularity of artists signed to majors.

In the years that followed however, streaming on platforms like Spotify cannibalised digital sales, and SoundCloud itself became a target, not just because of the increasing number of illegally uploaded tracks it hosted, but for music owned and hosted by labels themselves. After all, if Spotify and YouTube offered streaming revenue, why shouldn’t SoundCloud? SoundCloud had to find a way to pay rights holders or risk becoming a Geocities-style graveyard, and the relatively paltry subscription fees it earned from independent producers wasn’t going to cut it.

The result was the On SoundCloud programme, announced last year. Users would be able to get revenue from the service in much the same way as Spotify, and with the flexibility of YouTube, which automatically detects copyrighted content and offers the rights holder three choices: mute the video’s audio, block it, or monetise it using ads. Since the programme was announced, both Warner and independent label consortium Merlin have signed on, but a year on, SoundCloud has yet to reach a deal with both Sony and Universal despite reports that the company has offered them an equity stake. It’s not clear why talks have stalled, but it seems SoundCloud is stuck in a catch-22 situation that involves both its investors and the two remaining majors.

A source from one of the labels represented by Merlin told FACT that SoundCloud streams will pay them equivalent to YouTube or thereabouts – payments they say are “tiny” compared to Spotify. In June, Sony began pulling its own artists from SoundCloud citing “a lack of monetization opportunities” on the platform, which suggest that Sony doesn’t believe SoundCloud can offer them the percentages it wants. Despite having revenue coming in from ads and subscriptions, SoundCloud still relies on outside investment. While the company received $150 million in a funding round at the end of last year, it pales next to the reported $526 million Spotify gained in June, and if one report is to be believed, SoundCloud is running very low on cash. Furthermore, sources suggest that potential investors are waiting to see what happens with Sony and Universal before ploughing in more money. With the high sums reported to be involved, it’s a stalemate that could potentially break the company whether it decides to pay or not.

When FACT asked SoundCloud for official comment on the suspension of Radar Radio’s account, the company said: “We can’t comment on specific rights holders, but we’re happy to host any content on the platform as long as it’s properly authorised. If we’re told that any content has been posted without permission, we need to remove that content in accordance with applicable law.” It’s something that’s echoed in the company’s very detailed, and very fair overview of copyright on the platform, and it seems clear the company is doing everything within its power to stick to that. Occasionally, SoundCloud explains, mistakes will happen as the detection system gets it wrong, but what happened to Dummy is very different. While DIY declined to comment on why its account was terminated, the fact it happened on the same day seems like more than a coincidence.

SoundCloud has an official line on copyrighted material, but much of what goes on behind the scenes is still unknown to most people. In Dummy’s case, the trigger for its problems was material it claims had been sitting there for years. The goalposts seem to be moved on a daily basis, and nobody really has any idea why, or to what extent. For example, some high profile sites never seem to suffer any problems at all, despite uploading mixes that feature copyrighted content. Sources close to FACT have detailed a process of “whitelisting” at SoundCloud, in which certain accounts are given permission to upload copyrighted content. Whether this is restricted to those who are part of the On SoundCloud programme and using the whitelisting process to gain revenue from advertising, or whether Sony can also whitelist accounts despite not having an agreement with SoundCloud is unclear, but Dummy’s account restoration by Sony suggests the latter. What FACT does know is that whitelisting isn’t a blanket process – individual labels or distributors must give their permission for accounts to be whitelisted individually.

FACT asked Sony Music for comment on both their policy regarding SoundCloud account takedowns and Dummy’s allegations that it was given the tracks to host by the company itself, but Sony has yet to respond. SoundCloud states on its site: “We don’t give labels or anyone else access to the automated system to choose or prioritize the identifications, other than selecting which of their tracks they want blocked, and who (if anyone) should be allowed to upload their work without it being blocked.” Sony has every right to ask SoundCloud to remove illegally uploaded or remixed material, but its treatment of Dummy seems especially heavy-handed given the situation, and its silence on the matter makes it seem as if it’s happy to let SoundCloud take the blame.

Dummy might have had its account unlocked by Sony, but unfortunately it’s SoundCloud that’s suffering. Following the events of August 13, US producer Druid Cloak wrote on Facebook: “I deleted my SoundCloud account today in protest of their complete disregard for the communities that helped them become what they are. While it was an incredibly useful tool that I paid for for years, it became a parasite that incubated and spread the mentality of a statistical mindstate. I am sure I will lose a lot of visibility on my projects, but for now on I will be focusing on incredible independent tools like Bandcamp and progressive sites and publications to present new projects.”

Druid Cloak isn’t the first to ditch SoundCloud for these reasons, and it seems unlikely he’ll be the last. While a wholesale abandonment of the service seems unlikely, the stalemate between Sony, Universal and SoundCloud could bring the service to its knees, whether through lawsuits sources say have been threatened, or simply as a result of not having enough money to make a deal.

The potential loss of the platform would have fairly serious implications, not just for small artists but the music industry as a whole. “I think we’d be in big trouble if we lost SoundCloud,” Plastician says. “Most concerning to me personally would be my access to new unsigned artists, both from an A&R perspective and as a DJ who plays new music on the radio. I’d say I discover 99 per cent of the music I play on Rinse FM on SoundCloud, and probably download a lot from there too. I always ask people to send me music and demos via SoundCloud message too, so for me it really is the hub of almost everything I do on a day to day basis.”

The sentiment was echoed by LuckyMe on Twitter. “Keep pummelling SoundCloud and you’ll absolutely drive worse companies with worse finance,” the label wrote. “The idea that Sony strikes their catalogue and you blame the platform is daft. SoundCloud was a place to house all music made on technology that outpaced copyright law. And now they’ve hit ceiling. Be mad at copyright.”

For Sony Music, the idea of losing SoundCloud might not make much difference right now – it’s sitting on a catalogue of legacy material including music by David Bowie, Bob Dylan and Aerosmith which brings in a healthy sum of money each year. However, it also owns subsidiaries like Relentless, a label that counts Julio Bashmore, Bondax and Joey Bada$$ among its roster, young artists who have gained exposure with the help of SoundCloud. If the service goes the way of Grooveshark, it won’t just be underground artists like Plastician that lose their access to a wealth of undiscovered talent – it’ll be the majors losing their access to the next generation of hitmakers too.